'Don't get too excited,' Cisco's CEO says

But John Chambers concedes the networking giant had a great quarter and expects more.

By Charley Blaine May 13, 2010 7:15AM

If you listen only to those economic pundits who believe the global economic recovery is a sham, you can get quite depressed.

If you listen only to Cisco Systems' (CSCO) CEO John Chambers, you get a very different different picture. Business is pretty good, Chambers told analysts late Wednesday. Business is growing. Business is likely to keep growing.

Chambers was in a position to feel pretty good. In its fiscal third quarter, Cisco reported a 41% increase in net income (after one-time charges) to $2.5 billion or 42 cents a share from a year ago. Revenue was $10.4 billion, up 27% to from a year ago, when, as Chamber conceded, the global recession was at its bottom.

Cisco sees fiscal-fourth-quarter revenue growing 25% to 28% from year ago, which would translate into $10.67 billion to $10.92 billion. That would exceed the $10.3 billion that Cisco reported in the 2008 fiscal fourth quarter.

Investors weren't all that excited about the results, saying they were very good but not blowout. Shares fell 2.2% after hours on Wednesday to $26.15. They were up 3% to $26.74 in regular trading and are up 88% since the March 2009 bottom.

Chambers kept trying to be cautious. Don't get too excited, he kept warning the analysts. There are still a lot of problems. Companies may be seeing more demand overall, but they are being very conservative about adding staff. Cisco Systems

But he found it hard not to get excited.

Cisco is adding people. At the end of the second quarter, the company said it would 2,000 to 3,000 employees over the year or so. Already, the company has hired 1,000.

But the business is now demanding more staff at Cisco, Chambers said. 

In the fiscal first quarter, he said, only two of Cisco's 15 largest customers were seeing year-over-year improvement. In the second quarter, the number was up to eight. In the third quarter, all but one was seeing growth, and 12 said business was up 20% over a year earlier.

Orders were up all over the world. OK, orders from Italian customers were down 1% from a year ago. And Greece and Portugal were weak. But orders from customers in the United Kingdom: up 28% from a year ago. From Germany, up 12%. From France, up 27%. From the Netherlands, up 23%.

Elsewhere, Cisco was seeing bigger orders: 36% year-over-year from Canada; 80% from Brazil; India, up 40%; Mexico, up 63%; China, up 24% and Russia, up 31%.

Think for a second about what companies Cisco is talking about: Verizon Communications (VZ) and Verizon Wireless. IBM (IBM). Banks. Brokerages. Internet companies. Big telecom companies. Big energy companies.

Cisco is in the business of making voice-and-data networks work. Cisco is developing videoconferencing gear for small business and home-networking products.

If it can't develop a new product in-house, it buys the company that can. It has $39 billion in cash and equivalents on its balance sheet. So, financing a deal is not a problem.

That enormous financial flexibility gives Cisco enormous power, makes its job easier and may contribute to Chambers' relatively chipper outlook.

And the fact that Cisco is not a bank, is not in the homebuilding business or does not make cars helps, too. A lot. But it is worth paying attention to what Cisco sees. It sees where the economy is headed before a lot of companies. And what it sees right now is a recovery.

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